Philadelphia founding father Benjamin Franklin is attributed as having said “three may keep a secret if two of them are dead.” Without resorting to such drastic (and illegal) measures to protect your trade secrets, a new federal law will provide more remedies for business owners to prevent the misappropriation of their trade secrets by an employee or third party. This new law, the Defend Trade Secrets Act of 2016, does not displace state or local law, but it does provide additional remedies and benefits to a successful plaintiff. One key benefit of the law is that it allows a plaintiff to bring a misappropriation claim in federal court and to designate one particular federal court as the preferred forum.
What Does This Law Mean in Practice?
Almost every employer hires employees that have access to sensitive information that is crucial to business operations, such as financial, business, strategic, scientific, technical, economic, or engineering information, just to name a few. As an employer, you need to be able to draft employment agreements and policies that ensure the people you hire and trust appreciate that trade secret information is sensitive, and that they are required to keep it under lock and key. Many employers achieve this goal by incorporating nondisclosure provisions, or confidentiality provisions into an employment agreement. However, as with all good things, there is a catch…
Notify, Notify, Notify!
To take advantage of the benefits of the new law, such as an award for actual damages, damages for unjust enrichment, punitive damages, an injunction, or attorney’s fees for misappropriation of trade secrets, employers need to provide written notice to their employees of a new whistleblower provision within the law. This whistleblower provision allows for an employee to disclose a trade secret to a state, local or federal government official, or to an attorney, in order to investigate or report a suspected violation of the law. The provision only applies if the person disclosing the trade secret takes care to keep the trade secret confidential. For example, if that employee files a lawsuit that discloses a trade secret, any court documents that describe the trade secret have to be filed with the court under seal for the immunity to apply.
What is the Notification Process?
Employers do not have to notify employees if they do not want to take advantage of the added benefits under the law. But for those employers that do, you can either add a new provision to your employment agreements that mentions the law, or you can cross-reference a standalone policy in employment agreements that incorporates a notice provision.
What Should an Employer do First?
Breathe easy, there is some time to make changes to your employment policies and agreements because the law does not backdate, so it will only apply to agreements and policies drafted after the law was signed into effect on May 11, 2016. Forward thinking employers should do the following as soon as possible:
- Evaluate with counsel whether it is beneficial to your business to have employees sign agreements containing confidentiality language.
- Draft or update your employment contracts and policies to contemplate the new law in order to take advantage of the additional legal protections it offers.
- Consider updating and streamlining the choice of law provision on all documents and policies that contain language concerning trade secrets, non-disclosures, confidentiality provisions, or other restrictive covenants.
- Review your current policies and agreements that contain language in the above categories to make sure that they are internally consistent.
- Decide how and if you want to provide notice of the new law to your current employees.